Sen. Hendren: Tobacco tax proposals taking shape

The leader of the Arkansas State Senate says proposed tobacco tax increases, including those affecting currently untaxed e-cigarettes, could begin to take shape by the end of the week.

Senate President Jim Hendren, R-Sulphur Springs, said he and several others are working on proposals.

Among the considerations is the fact that smoking-related health problems cost Arkansas’ Medicaid program far more than tobacco taxes raise, according to a new report.

According to the Arkansas Center for Health Improvement, tobacco-related diseases affecting adults ages 30 to 65 cost Arkansas’ Medicaid program more than $795 million a year. That figure does not include health issues related to pregnancy, childbirth and childhood. ACHI is an independent health policy research, advocacy and program development center.

Meanwhile, the Department of Finance and Administration says taxes on cigarettes and other tobacco products, not including cigarette papers, raised about $230.4 million in 2017. That’s a difference of about $565 million between tobacco taxes and Medicaid costs related to smoking.

Hendren chaired the Arkansas Tax Reform and Relief Task Force, a legislative group that studied proposed tax law changes last year, prior to this year’s legislative session.

The task force recommended cutting the state’s top income tax rate along with other changes. Separately, legislators also are looking for ways to direct more money to highways. Gov. Asa Hutchinson wants legislators to refer a plan to voters that would increase revenues. One proposal suggested by highway advocates is increasing the motor fuels tax.

In an interview with Talk Business & Politics, Hendren said increasing tobacco taxes could be an alternative.

“I think it’s worth at least having the discussion, which is, before we ask everyone to pay more gas taxes, do we want to at least consider, should those that are smoking by choice at least be asked to pay enough to cover the cost that tobacco-related illnesses bring to the taxpayers?” he said. “So I’m getting information. We’ll see.”

A tobacco tax increase would require a three-fourths legislative majority, a high bar. Hendren has asked for more data regarding the cost to Arkansas taxpayers and also wants information about costs to commercial insurance.

“And I’m talking to the tobacco-related industry … saying, ‘Clearly there’s a problem here. Do y’all want to partner with us on fixing it, or do we just have to see how it works out in the legislative process?’” he said.

Some observers have suggested that a potential tobacco tax increase might be rolled into overall tax reform to keep it from standing alone for a 75% vote in both chambers. If combined with a tax decrease package, the pairing might make it more palatable to lawmakers who wouldn’t consider raising a tax independently.

Hendren said the task force learned there is a significant disparity among states’ tobacco taxes. Arkansas’ cigarette tax is $1.15 per pack. Oklahoma last year raised its tax by $1 to $2.03 a pack. Missouri’s, by contrast, is 17 cents per pack and can only be changed by the voters.

The national average is $1.73 per pack, according to the Truth Initiative, a nonprofit public health organization funded by the 1998 tobacco settlement between states and major tobacco firms.

In addition to the $230.4 million, tobacco-related companies and users provide additional revenues that ultimately cover health costs. Arkansas’ share of the tobacco settlement in 2018 was $57 million, Attorney General Leslie Rutledge’s office announced last April. Since 2001, the settlement has produced more than $1 billion for the state’s public health programs. Sales taxes are charged on tobacco products in addition to tobacco taxes, while tobacco companies pay various business-related taxes. Also, under the Affordable Care Act, insurers can charge smokers premiums that are up to 50% higher than non-smokers’.

While Arkansas taxes cigarettes at $1.15 per pack, it subjects e-cigarettes and other vapor products, which also contain nicotine, only to sales and use taxes. According to the Truth Initiative, e-cigarettes are not subject to a federal excise tax, and only eight states and the District of Columbia have an e-cigarette tax. Louisiana is the only state bordering Arkansas that has one. Kansas also does.

Those products are booming in popularity, especially among young people. In November, the Food and Drug Administration and Centers for Disease Control and Prevention announced that more than 3.6 million middle and high school students had used e-cigarettes in the past 30 days in 2018, an increase of 1.5 million students from the year before. Moreover, young e-cigarette users are using the products more frequently than the previous year.

The industry leader, JUUL, had gained 68% of the e-cigarette market as of June 2018, according to the Truth Initiative. A Truth Initiative survey in 2017 found that 63% of JUUL users were not aware the products always contain nicotine.

With the number of young people using e-cigarettes increasing, Dr. Joe Thompson, ACHI president and CEO and a former Arkansas Surgeon General, said, “We’re going to lose another generation to nicotine addiction if we’re not careful.”

JUUL’s website says it seeks to “end combustible smoking” and that it doesn’t seek to “attract youth, never smokers, or former smokers.”

According to ACHI, the top 10 smoking-related diseases in fiscal year 2015 affected 170,043 Medicaid-enrolled Arkansans ages 30-65. Leading the list of diseases was chronic obstructive pulmonary disease, which affected 47,365 in that age group. A category labeled “other chronic respiratory” issues affected 39,248. Diabetes was third with 20,253 affected.

The other top health issues were: lower respiratory infections, 16,972; ischemic heart disease, 14,296; cardiovascular disease and circulatory issues, 11,288; asthma, 6,600; tuberculosis, 6,507; colon and rectum cancer, 3,929; and stroke, 3,585. Individuals could have more than one condition, but ACHI only included the one with the highest smoking-attributable risk.

The Campaign for Tobacco-Free Kids says on its website that smoking kills 5,800 adult Arkansans each year, while 69,000 Arkansans under age 18 will die prematurely from smoking. More than a third of cancer deaths in Arkansas are attributable to smoking.

The Campaign says that 22.3% of adult Arkansans (512,600) are smokers, compared to a national average of 14% in 2017. It says 13.7% of high school students smoke, compared to a national average of 7.6%.

Why a higher smoking rate in Arkansas? ACHI’s Thompson said tobacco companies targeted lower-income and lower-educated individuals, and also targeted minorities. States with higher percentages of those groups have higher smoking rates and higher health consequences and costs.

“Although we’ve made progress, tobacco is still the number one driver of preventable illness and death in this state,” Thompson said. “We still have remarkably higher rates of tobacco users in this state.”

Broken down by insurance category, 29.1% of Arkansas smokers were covered by Medicaid. Another 27.4% of smokers were uninsured, while 12.9% had private insurance and 12.5% were covered by Medicare, ACHI’s report said.